Public Investment Corporation (PIC) response to information request, with Deputy Minister

Public Accounts (SCOPA)

21 November 2018
Chairperson: Mr T Godi (APC)
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Meeting Summary

SCOPA had resolved to have an engagement with the Public Investment Corporation (PIC) because of concerns arising from negative publicity on the PIC’s use of public funds and SCOPA had a duty to prevent mismanagement of public funds. SCOPA had requested information in June 2018 about PIC transactions but six months later, the information had not been received. The Deputy Minister of Finance had written a letter the day before the meeting informing SCOPA that based on legal advice PIC cannot share information on its investments with Parliament, as it may subject it to litigation as client information is confidential. The letter noted that a commission of inquiry had been set up by the President to look into allegations of impropriety.

The PIC clarified that the reference to the commission of inquiry was for efficiency reasons to avoid duplication. The PIC board chairperson, the Deputy Minister of Finance, apologized for the tardy response and reported that, despite the legal opinion, PIC thought it was respectful to appear before SCOPA.

Members were of the view that the legal opinion was irrational. They asked what the PIC had been doing all this time since the SCOPA June request. Any confidentiality concerns could be deliberated on between the Chairperson and PIC. If there is sensitive information, there is a process for having a closed meeting. Members pointed out that what the commission of inquiry is looking at is different from what SCOPA wants to understand and that SCOPA has the right to call the PIC Board to account.

The PIC was directed to provide the requested information to SCOPA by the Wednesday 28 November and they would reconvene in two weeks’ time.

The PIC Chairperson confirmed that the directive from SCOPA was clear.
 

Meeting report

The Chairperson noted that it was the first time SCOPA was engaging with the Deputy Minister in his capacity as the PIC chairperson and thanked all for making time to meet with SCOPA. SCOPA had made a request on 4 June 2018 to the PIC for information. SCOPA had resolved to have an engagement with PIC because of concerns arising from negative publicity on the PIC’s use of public funds and SCOPA had a duty to prevent mismanagement of public funds. In the recent past SCOPA had picked up on matters concerning SABC and SAA. It had even had to issue a subpoena to the Transnet board and management. SCOPA also took up Eskom challenges including the municipal debt and called in ten municipalities to account. Eskom at one time had a rating higher than the country but the position has since changed with the IMF underlining Eskom as a public risk.

SCOPA wanted to provide PIC with a platform to dispel the myths so that Parliament can be satisfied there is nothing untoward. From reports heard, the PIC is doing well but that is no reason for complacency, Members need to be vigilant in ensuring nothing goes wrong. If anything goes wrong at PIC, it is the fiscus that carries the burden. SCOPA’s interest is to provide a platform for PIC to explain things. When he wrote to the PIC in June, he said SCOPA wanted information and documents. The letter he wrote used former Finance Minister Gigaba’s request to PIC in a letter dated 9 October 2017. The Minister had requested PIC to furnish:
▪ Documentation on all PIC transactions, listed and unlisted, concluded in the past three years
▪ The amounts of the transactions concluded
▪ Transaction advisors or sponsors and the amounts paid to them by PIC
▪ Disclosure of BEE consortiums involved in the transactions and the names of directors and shareholders
▪ List of transactions concluded with parties classified as prominent influential persons
▪ Individuals or companies funded by PIC or participated in PIC transactions more than once in the past three years, including the amount of the transactions.

The expectation was that the information would be given to SCOPA and SCOPA would determine the areas of focus and scope for the engagement. He emphasized that the main concern for SCOPA is the prevention of mismanagement of public funds. The letter was in June and PIC was now meeting with SCOPA in November yet the requested information was not in the possession of SCOPA despite letters, endless telephone calls and personal engagements between PIC and the SCOPA Chairperson. He had the previous day in the afternoon received a letter from PIC encompassing a legal opinion from its attorneys, Norton Rose Fulbright. He was concerned that PIC had to seek a legal opinion on what to do with SCOPA’s request. The Committee and PIC need to chart the way forward, as PIC has legal advice which has made certain recommendations. He asked PIC to elaborate what is needed to take the process forward.

Deputy Minister of Finance, Mr Mondli Gungubele, stated that the picture painted by the Chairperson was correct. PIC does not question the authority of SCOPA and understands the background against which SCOPA wants PIC to appear, taking into account the reports about PIC that are there in the public domain. He is happy that SCOPA acknowledges the positive work of the institution; however SCOPA cannot keep quiet when there is controversy. He clarified that SCOPA is not subject to what the executive does and the mention of the commission of inquiry was only for efficiency reasons and to ask if it is possible to use that particular forum. He expressed PIC’s apology and confirmed that the PIC response to the correspondence had not been as efficient as it was supposed to be. He reported that the only board meeting that looked at the issue sat the previous week on 16 November. Despite the legal opinion, PIC did not have any reason not to appear when called by SCOPA. It is possible that there is correspondence which the legal opinion does not affect but between the 16 November and the board appearing before SCOPA today, it could not come with a clear determination. He said it was respectful to appear before SCOPA and inform SCOPA that there is this opinion and PIC looking at the legal opinion coincides with the SCOPA meeting. Thus when PIC sits as a board it will take into account what would have developed from the SCOPA meeting.

The Chairperson pointed out to Members that the PIC chairperson is communicating to SCOPA that despite the legal opinion, PIC still felt it important to appear.

Mr M Booi (ANC) stated that the Deputy Minister had made it difficult for SCOPA since committee members usually leave the operational side to the chairperson. The Portfolio Committee gets into challenges on substance. Historically there had never been such a situation where the Portfolio Committee is required to give guidance. The letter by the legal advisors acknowledges that PIC can account to SCOPA. Whatever is outstanding in substance, SCOPA can always recommend to different committees. He advised PIC to talk to the Chairperson who can guide on how to present sensitive information to Parliament. There is a process for having a closed meeting. Members are sensitive to their role of keeping the public informed yet ensuring confidentiality put in place by PIC is not being pushed by SCOPA’s demand. He gave the example of the Steinhoff case which has been an experience for Parliament on how to deal with sensitivities that are interrelated between committees and different institutions. He did not find anything new coming from the legal advice. PIC can engage with Parliament and pinpoint sensitive information to the chairperson and that Members want the substance. He urged PIC to use the parliamentary platform to share with the public, verify matters, share positive items and deal with what is negative. He asked when SCOPA can have PIC back to deal with the substance.

The Chairperson requested that SCOPA be furnished with the brief that PIC gave its lawyers.

Mr Xolani Mkhwanazi, PIC Deputy Chairperson, replied that he is trying to ascertain if the instructions were done through a meeting or through a letter.

Mr M Hlengwa (IFP) asked the Board to give SCOPA a sense of what guided them to seek legal advice. PIC has not dealt with the Committee in good faith. The Chairperson sent the letter to PIC on 4 June, the invitation was sent on 6 November and the response to the invitation was to seek legal opinion. The opinion is irrational and inconsistent. He referred to paragraph 10.13 of the opinion which stated that the authority of the Commission trumps an inquiry by SCOPA. He believes that was the paragraph needed by PIC. He did not take kindly to a waste of time. He asked what PIC had been doing all this time and added that the appearance by the Board is “malicious compliance”. Deliberations could have set a framework of operation for all areas of concern PIC had. What is in the public domain in government departments and entities is that Members are at the tail end of Parliament and hopefully the matters will die a natural death. He is interested in understanding the rationale from all the correspondence SCOPA has had. Seeking a legal opinion speaks to a jittery outlook about what will be unearthed by SCOPA. He did not accept the legal opinion. He was concerned that the legal opinion states that there is a process elsewhere bigger than Parliament yet all bodies want appropriation from Parliament. PIC deals with people’s lives and taxes and SCOPA has a duty to safeguard the public purse. The commission of inquiry was announced on 17 October – long after Parliament had set in motion this process and PIC should not undermine it with a shady legal opinion

Mr D Ross (DA) pointed out that when SCOPA interacted with the Deputy Finance Minister the previous day on Treasury’s Integrated Financial Management Information Systems (IFMIS), SCOPA had to fight to get the forensic report. The previous day he had advised the Deputy Minister not to kick the can down the road in terms of providing necessary information. It is unfortunate that the very next meeting SCOPA wants to obtain a report, it is presented with a legal opinion. He asked what PIC has done in the meantime to present SCOPA with the documents. He asked if the PIC had engaged with the Finance Standing Committee and if its 2017/18 financial statements had been presented.

Mr Gungubele responded that the financial statements were presented in September.

Mr Ross agreed that the presentation was made but it omitted unlisted investments. It is highly concerning that SCOPA receives an opinion before it begins to engage. He proposed that SCOPA gets a parliamentary legal opinion as an answer back to PIC. SCOPA needs to engage with the Auditor General on whether there were any details that were omitted in the audited financial statements. He was hoping to have a financial discussion on the return on investments and how PIC deals with unlisted investments which are roughly R70bn per year. He wanted clarity on investment in funds and what the screening process is, as well as investments in state owned entities and whether they were loans or guarantees.

The Chairperson reminded Members that there is a concern about confidentiality and secondly there is the mention of the commission of inquiry. The commission of inquiry is irrelevant. SCOPA had previously met with SITA, SAPS and Treasury on the IFMS. He asked for Members for suggestions on how to deal with the concern about confidentiality, when SCOPA should get the requested information and when SCOPA should meet with the PIC to have a full engagement.

Ms T Chiloane (ANC) noted that the Chairperson sent the letter to the PIC board in June. If PIC had sent a letter to the Chairperson in response, the Committee could seek and establish what is confidential and what is not confidential. What was happening is greatly undermining Parliament. PIC reported that it had a meeting on 16 November 2018 to discuss the request by SCOPA. She was concerned that only one board meeting had been held during that whole time. She suggested SCOPA sets a date by when PIC must give the information. It does not work to say there is a legal opinion since Members have the right to receive information and interrogate information. She asked why PIC had to seek a legal opinion this week instead of when it received the letter. The sub judice rule does not work in Parliament. Members are calling the accounting authority to account. Members must deal with the matter before the elections

Mr Dan Matjila, PIC CEO, responded that the briefing to the lawyers was done telephonically.

The Chairperson asked whether there are minutes of the board resolution to seek a legal opinion.

Mr Mkhwanazi replied that the letter from Finance Minister Gigaba on 9 October 2017 asked for a lot of information. The board engaged extensively, together with the executive, on that letter, on the practicality and legality vis-à-vis clients and how much the PIC is allowed to disclose. The discussion was intense.

Mr Hlengwa said he appreciated the background but asked Members not to lose the nuance of where the meeting is at. He asked PIC to help Members understand from where the opinion came.

Deputy Minister Gungubele responded that the legal opinion was received on 15 November the previous week. When Mr Gigaba wrote a letter in 2017, the board at that time got a legal opinion on how to respond to the minister. The board requested a meeting with the minister to engage with the legal opinion however the minister left that position before the meeting could take place. He added that the letter from SCOPA coincided with both the then-Minister Gigaba intervention and what the current Minister will be looking at.

Ms N Khunou (ANC) pointed out that PIC is a public entity and not a private company. She asked why PIC had to seek an opinion on the letter received from the Minister. She asked what PIC was hiding and was concerned that there is something wrong

The Chairperson noted that the Deputy Minister had pointed out that what was done was the practice of PIC.

Deputy Minister Gungubele added that PIC deals with client information and that the instruction by the Minister was affecting client information. The lawyers should have highlighted in the legal opinion what is confidential information and what is not, and then zoomed in on what is confidential.

Ms Khunou stated that if a government entity has rules and regulations, Members need to know the practice and have a look at it. Many entities make up their own practice which practice does not make sense at all.

Mr D Maynier (DA) said what concerns him is the virtual collapse in governance at PIC. If there were strong governance, the Committee would not be in such a situation. The legal advice has been given by a counsel who does not have expertise in administrative law particularly in reference to paragraph 10.13. The second flaw of the legal opinion is that it assumes that the scope of commission of inquiry is similar to the scope of inquiry by SCOPA. The third flaw is that PIC is not following its own legal advice and he referred to paragraph 9.13 in the opinion which states that not all information is confidential. Confidentiality is needed for investment information. There is only certain information PIC should not disclose. If PIC followed its own advice it could have disclosed significant information ahead of this meeting. On the PIC transactional advisors, he has previously received a detailed parliamentary reply on transactional advisors. He asked why  Members cannot have similar information on every transactional advisor over the last two years. It has been established practice over the last two year for the last two years for PIC to disclose significant information on its investments, in fact it discloses 16 elements per investment. He recommended that SCOPA gets its own legal advice and that PIC disclose information required in terms of the law and specifies what information it cannot disclose

Mr E Kekana (ANC) said that the assumption from PIC is that SCOPA does not understand its role and wants to educate SCOPA on its role. The Chairperson wrote a letter in June and indicated the information SCOPA was looking at. PIC was to engage SCOPA on the information requested. In going to lawyers to seek a legal opinion he agreed with Mr Hlengwa that the compliance by PIC was malicious. He proposed that PIC provide the information requested. Members should agree on the time frame and also agree on what is confidential and what is not confidential. He proposed that SCOPA instruct PIC to provide the information, failure of which, PIC knows the consequences.

Ms Khunou said that there are many government employees who resign in order to have access to the pension money because the public has heard that PIC is losing money. Something is wrong and Members have to get to the bottom of the matter. She was concerned that PIC may be giving money to political parties. She asked PIC to read up what Parliament is about and for officials to check the employment letters given to them. She asked how the legal opinion interacts with laws passed by Parliament.

Mr Hlengwa stated that Members do not need a legal opinion. He proposed that SCOPA proceed with the request for information. SCOPA can start the process within two weeks during which time information will be received and distilled. SCOPA wants to receive the information and in early January bring the matter to finality. He was interested in knowing what the content of the conversation to the lawyers was about the brief given and what the cost of the legal advice was

Mr Ross said that an internal legal opinion by Parliament will not incur any cost. PIC also needs a legal opinion and a brief to the chairperson about the conflicting recommendations. He asked PIC to provide information on the amounts invested in state entities, the status of its audit outcomes and any other information SCOPA should have.

Mr Booi asked Members to look at deciding on dates and the Chairperson will sort out matters of confidentiality. The economy is doing badly and there is uncertainty about pensions and SCOPA cannot support what Members do not know. SCOPA does not want newspapers telling Members what is happening within PIC.

Ms Chiloane stated that the information is readily available and that two weeks is a long time. She proposed that SCOPA gives PIC one week to provide the information and a meeting can be held the following week on Wednesday 5 December. She referred to paragraph 10.16 of the legal opinion which advises that PIC write to SCOPA, copying in the commission of inquiry and asking the commission to write to SCOPA to avoid duplication. The commission set up by the President is mandated to look at whether PIC investment decisions reported in the media in 2017 and 2018 contravened legislation or PIC policy and resulted in undue benefit for PIC director or employee or associate or family member and if impropriety is found was it due to ineffective governance by the PIC Board. What the Commission is looking at is different from what SCOPA wants to understand. There is nothing confidential as that information is already known to the media.

Ms Khunou reiterated that there is need for openness, transparency and accountability. Transparency is openness to citizens. SCOPA is not going to seek a legal opinion; Members will give PIC one week. PIC has a chance to talk to the public and SCOPA does not want a society uncertain about its investments.

Mr Maynier agreed that SCOPA convenes a further hearing on the basis of full disclosure. He would be interested in a legal opinion from Parliament in reference to paragraph 10.13 and 10.16. Members should not allow that perception to remain. He asked PIC when it will disclose its list of undisclosed investments since it is customarily done before the Medium Term Budget Policy Statement.

Mr Kekana advised that Members should get a report from PIC on Wednesday 28 November by close of business in response to the Chairperson’s letter. If there is a need for a legal opinion, SCOPA will do that.

The Chairperson stated that SCOPA will not be seeking a legal opinion and that the discussion has helped clarify the matter. It is wrong and there is no way a commission of inquiry can instruct Parliament on what to do. A process of the executive cannot be above the work of Parliament. Rules of Parliament say SCOPA has the right to call any person and to require the production of any document. Where there are concerns about confidentiality, a discussion can be had on this. He gave the example of the SIU which had wanted a closed meeting on SABC and SCOPA did not agree. The decision is on a case by case basis and that PIC could always bring information to him and engage him on areas of confidentiality. He directed that SCOPA should have the information before close of business on Wednesday the following week. He added that the Parliament programme ends on 5 December but SCOPA may have a meeting on 6 November in the evening and 7 December in the morning. He advised that Parliament and the Executive should be placed apart. He added that SCOPA previously subpoenaed the board of Transnet and it is able to compel PIC to appear before it. SCOPA has in the past met contemptuous entities and has been able to deal with such entities. He advised PIC to engage with the right frame of mind since SCOPA is giving PIC a platform to put forward its challenges so solutions can be sought. He added that SCOPA wants to be proud of PIC since it is the biggest asset manager on the continent.

Deputy Minister Gungubele responded that the directive by SCOPA is clear and that PIC had at the beginning of the meeting apologized. He confirmed that the meeting had communicated that PIC needs to handle its concerns in a particular way. He thanked SCOPA and looked forward to doing better. He was clear in his mind that the Executive and Parliament are independent.

Meeting adjourned





 

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